Russellville, Pope County among those stung by $4.2 million unexpected tax repayment

By Sean Ingram

newseditor@couriernews.com

Russellville's treasurer said Wednesday the city would repay $44,415 in tax collections over an 18-month period, while other cities and counties may have to rejigger their budgets as the state repays $4.2 million to a business that paid too much in local sales taxes.

Monday, the Arkansas Department of Finance and Administration (DF&A) sent letters to 124 cities and counties notifying them they will get less in monthly sales tax revenue checks over the next 18 months so the state can pay the refund.

The tax refund to the unnamed business is the largest in recent state history, according to assistant revenue commissioner John Theis. The state collects local sales tax revenues and redistributes the money to the local governments.

City Treasurer Jennifer Humphrey said Wednesday that Russellville's repayment this year would be less than .5 percent of the city's projected sales tax revenue.

"It will only decrease our sales tax revenue in 2006 by $25,650, which is a very small percentage of total estimated sales tax revenue," Humphrey said, as many city officials gathered at the annual Arkansas Municipal League convention in Little Rock, which concludes Friday.

Many county judges, mayors and other city officials said they were dumbfounded when they received letters from the state finance office notifying them they must repay the $4.2 million in local sales and use taxes to an unnamed business that erroneously reported and overpaid local sale taxes between August 2001 and August 2004.

Theis said state tax officials have worked out an arrangement that will allow the 56 counties and 72 cities to reimburse the undisclosed business over an 18 month period, beginning this month.

"The refund results from errors the taxpayer made when filing their monthly sales tax returns," Theis said.

DF&A officials won't divulge the name of the business that requested the repayment. By law, tax records and files maintained by DF&A are confidential and the state is not authorized to disclose the name of the taxpayer receiving the multimillion-dollar refund.

Fort Smith must make the biggest repayment, $204,101.15, while Sebastian County has to repay $129,232, according to DF&A records. Washington County and Fayetteville are second and third on the payback list with tabs of $186,173.53 and $172,407.95, respectively.

Pulaski County, the state's most populous county, must refund $163,735.39, or $9,096 a month.

"It certainly doesn't help," said Pulaski County Judge Buddy Villines, whose county has grappled with funding for its jail. But "it's not going to make a traumatic difference."

Hempstead County Judge Wallace Martin said he was stunned by the notice.

"It hit me blindsided. I was totally in the dark about this," said Martin, who was notified Monday that the county would have to refund $37,319.89. "No one in our courthouse knows anything about it."

Martin said the refund payment would cost his county $2,073 per month from its general fund. In addition, Hope, the Hempstead County seat, also will have to remit $21,327.79 to the state, or about $1,185 over 18 months.

Theis said DF&A sent notices to local governments because of the unusually large refund claim and because affected cities and counties would need time to adjust their budgets.

Originally, the business asked for a refund of about $10 million because the overpayment stretched back several years, Theis said. The department decided the refund should only apply to tax collections over August 2001 through August 2004.

Don Zimmerman, executive director of the Arkansas Municipal League, said the problem could have been worse.

"It's my understanding that it was negotiated down from about $10 million to about $4.2 million," Zimmerman said. "They were fearful that litigation would have resulted in a greater refund than what was negotiated. It was probably not as bad a deal for local governments as it could have been."

Martin said Hempstead County would be able to repay the state but would feel the sting.

"We don't budget that much overage to take care of something like this, (but) I don't foresee having to cut anyone or anything at this point," he said.

Mayor Ray Baker of Fort Smith said he had received a letter from state tax officials, but would not how the surprise tax bill would affect the city's budget.

"The city's finance director will handle that," said Baker, a public school teacher who serves as Fort Smith's part-time major.

Steve Davis, Fayetteville's finance director, said the state will collect the $172,000 that the city owes by withholding $9,578 each month from sales taxes collected by the state and remitted to the city.

Davis said the state would begin withholding the money in February, but that he doesn't foresee the loss to impact the city financially.

"(It's) a significant amount of money, but it's not a killer," he said, adding that the city collects 1 3/4-cent sales tax.

Washington County Treasurer Roger Haney said the county must remit $186,000.

"The time frame makes it a little easier," Haney said. "Obviously, we've already spent those dollars, so we'll have to divert some other funds to pay it back."

Zimmerman said local governments will have slightly reduced sales tax receipts for the next 18 months as the refunds are being repaid.

"Some of them operate on pretty thin margins and every little bit hurts," he said. "But I don't think this will put anybody in a bind. It should amount to less than a 1 percent reduction on their sales tax receipts."

The Associated Press and Arkansas News Bureau contributed to this article, as well as Courier report Scarlet Sims.